🌎 Macro market freeze chills climate tech: Venture funding down 40% in H1 2023

Was the climate tech VC frenzy a peak or is it a wave?


As venture capital funding falls across the startup landscape, the dollars flowing into climate tech companies dropped ~40% in the first half of 2023.

Investors spent a lot of money in 2021 and 2022. With zero interest rate policy (ZIRP) days in the rearview mirror, deployments of real assets suddenly look real expensive again. Yet, dollars-and-cents demand from customers for better, faster, cheaper climate technology products only continues to grow—along with the talent flows, regulatory accelerants, and evolving capital stack.

If climate tech is truly a resilient trend, what’s going on with the current funding slump?

  • Macro gravitational pull: The overall venture market dropped 53% YoY in Q1, a further 10% decline from the prior quarter. Climate’s 40% decline is somewhat more insulated, but not immune to macro realities like the frozen exit markets. In fact, late-stage and growth investments in climate tech saw a greater dropoff than the market as a whole, potentially exacerbated by the relative capital-intensity of the physical asset climate tech businesses.
  • Growth investors already picked their horses: Investors made their biggest bets in 2021 and 2022. Now they could be waiting to see how those companies' fortunes play out before going big again (and they certainly don’t want to compete with their own portfolio by doubling down in maturing climate verticals). Many growth assets were scooped up during the market peak, creating a current dearth of companies ready for growth-scale financing. A new cohort of early climate tech companies founded at the start of the climate tech boom are now climbing the ladder, but not yet seasoned enough to warrant mega-checks.
  • Earlier, enabling tech shift: Thus, the uptick in early stage funding during the first six months of this year could be a sign that investors are allocating capital toward earlier technologies up (or down) the value chain from their existing investments, either to support big prior bets or because of updated learnings.
  • Pending a strategic boost: Announced funding activity is a lagging indicator of market sentiment. The tailwinds from the Inflation Reduction Act and other government incentives are just beginning to show up in the market—at the same time that strategic corporate investors are leaning into the space.


💰 H1’23 funding: Funding in the first six months of 2023 totaled $13.1B, down 40% from H1’22 and down 35% from H2’22.

🤝 Deal count: Overall deal activity increased, with deal count up 8% vs H1’ 22.

📉 Growth: Growth funding bore the brunt of the market contraction and plummeted 64%, while deal count dropped 43%.

📈 Early: Breakout Seed funding grew 23% in H1’23 compared with H1’22, and Seed deal count increased 34% during the same period.

💸 Round size: Average deal size decreased 44%, with Growth rounds in particular down 37% on average. As total deal count actually rose in H1’23, all fingers point to the significant downsizing of rounds as the cause of the climate tech funding decline.

🚗 Vertical: Funding to Transport, Energy, and Food—the “Big Three” verticals—each dropped by ~50% compared to the prior year.

💤 Fewer repeat investors: The number of investors who have done 4+ climate deals in H1’23 slumped ~40% vs the same period last year.

🎉 Cumulative: Since the start of 2020, ~2,500 climate tech cos have raised $117B+ of venture funding across 3,332 deals.

A note on methodology: This funding report captures only venture capital (VC) and growth equity deals that have been publicly announced through regulatory filings or press releases as of June 28, 2023. Please see the bottom of this post for full methodology and climate vertical definitions.

The big picture: $13B in H1’23, down 40% from H1’22

As the market freeze officially hits climate land, H1’23 marks the first time that quarterly funding has decreased over two consecutive quarters since the start of the climate tech boom in 2020. The decline should come as no surprise given the backdrop of the overall venture market, the telltale downtick in our 2022 funding report, and the sentiment from our investor pulse check (which astutely anticipated a 50% slowdown in deployment).

  • Funding in the first six months of 2023 totaled $13.1B, down 40% from H1’22 and 35% from H2’22.
  • Quarterly investment totals dropped to $6.6B and $6.5B in Q1’23 and Q2’23, respectively. Each quarter marked a ~40% decline from the same period in 2022 and a return to 2020 quarterly funding levels.
  • With 633 deals in the first six months of 2023, overall deal count increased slightly, up 8% compared with H1 and H2 2022. Of note, a higher activity level coupled with an overall funding decline means that average deal ticket size is way down.

While a 40% funding drop is certainly not for the faint of heart, next quarter will tell the true story. Q3 consistently ranks as the top quarter for funding (as investors and founders return in a flurry from the summer lull).

  • If Q3 funding ticks back up, it could indicate a recovery and resetting to a more sustainable base from the frenzy of 2021 and 2022.
  • Should funding drop further next quarter, it could suggest a true climate slowdown, with investors reevaluating their strategies and slowing their pace—waiting on returns and results from their previous bets before making next moves.

A tale of three stages

The conventional wisdom that earlier-stage investments have been insulated from the public and growth market freezes seems even more true in climate tech. Early stages (Seed, Series A) fared better than Late stages (Series B, C) and Growth (Series D, Growth) in the first half of 2023.

  • With a dropoff in IPOs (and do we really have to talk about SPACs?), Growth funding plummeted 64%—making up only 21% of total funding in H1’23, compared to ~50% share in previous years. The decline in climate Growth funding was double the ~30% drop in the overall VC Growth-stage market.
  • Breakout Seed climate tech funding grew 23% in H1’23 compared with H1’22, even as overall funding of the Angel/Seed venture market dropped >50% during the first three months of this year.
  • Deal count at the Seed stage healthily increased compared to both the front-half and the back-half of 2022, while Series A and Series B activity remained relatively flat.
  • Meanwhile, later-stage deal activity slowed significantly, with a ~40% drop in both Series C and Growth deals. Many growth-ready assets were scooped up during the 2021-2022 market peak, leading to a short supply of growth opportunities today. As the new cohort of startups founded in the early days of the climate tech boom begins to reach maturation, expect more growth (in growth) to come to market over the next few years.

Variations by vertical

The overall funding drop owes largely to the “Big Three”: Transportation, Energy, and Food & Land Use. These have historically made up the lionshare of blockbuster rounds (e.g. Northvolt’s $2.7B, Rivian’s $2.5B, and Commonwealth’s $1.8B raises), and 80%+ of total funding for each of the previous three years.

Zooming out puts things into perspective. Since the start of 2020, ~2,500 climate tech companies have raised $117B of venture funding across 3,332 deals, with cumulative industry growth averaging ~30% each quarter. The relative slowdown brought the cumulative industry growth rate to 6% over the past two quarters—indicating a flattening of the curve rather than an all-out retreat.

Mature vs. emerging

  • In H1’23, the “Big Three” took a ~50% funding haircut compared to the prior year.
  • Carbon, which was 2022’s climate tech darling, took the trophy for largest YoY funding plunge (down 56%) as investors started to slow their roll in carbon removal bets.
  • However, up-and-coming verticals Built Environment and Industry, which have historically been underinvested in relative to their climate impact, actually saw dollars increase (both 7% respectively), likely owing to enthusiasm from IRA and EU subsidies.

Double click: Transporting out of growth

The uptick in early-stage activity amid the larger downturn could be a sign of a wave of recalibrated investor interest, focused less on direct emissions-reduction tech and more on the enabling tech necessary to make those transitions work. Take Transportation as an example.

  • Capital raised in Series A and B rounds made up the majority of funding in Transportation over the past 12 months, in stark contrast to H1’21 when >75% of funding came from Growth exclusively. Two years later, Growth’s share of Transportation funding has evaporated to just 18% of the total.

Autos alone account for 12% of total climate tech VC dollars tracked since 2020. Now that large automakers have started making big bets in EVs and battery manufacturing (just look at Ford/SK On), it’s unlikely that an upstart startup could outmaneuver their resources. In other words, the opportunity for the next Tesla has mostly played out. In response, investors are scouting further up and down the value chain for the next bottlenecks to unlock decarbonized transport. Backers of previous transportation mega-darlings, like Rivian and Quantumscape, have matured their sub-sector preferences from EVs and battery tech towards emerging tech enablers like mining efficiency, EV charging optimization, and fleet management—supported by policy tailwinds.

Ticket sizes tick down

  • Average ticket size decreased to $22.5M—a 44% drop from H1’22 that was driven by the steep decline in the size of Growth rounds.
  • With deal count actually up 8% in H1’23 vs H1’22, it was the significant downsizing of rounds, especially for large deals, that drove the overall market funding decline.
  • The slight increase in average round size at Series B and C could be driven by the prioritization of runway extension and more frequent bridge rounds, rather than graduating to attempt to raise a mega-sized Growth round. In other words, flat is the new up!
  • The prized $100-500M deal size category has historically commanded the largest share of climate tech venture funding (typically 40-50%).
  • But as the double whammy of average ticket sizes and Series B+ deal counts declined, the $100-500M cohort plummeted 60% in both funding and deal count between H1’22 and H1’23.

These $100-500M deals at the Series B+ stage typically happen when companies raise venture capital or growth funding for their first of a kind (FOAK) or demonstration scale facilities. This is the key valley of death for climate hardtech where tech readiness level (TRL) isn’t mature enough to raise non-dilutive project finance or debt but companies still need a significant pool of capital to prove their tech at scale. Often the riskiest stage for climate tech investors and startups alike, the market downturn appears to be steepening the valley in the near-term.

Who’s active

  • The tally of unique investors participating in at least 2 climate deals remained surprisingly steady between H1’22 and H1’23 (404 and 397, respectively).
  • But the number of investors who have done 4+ climate deals in H1’23 is down ~40%, compared to the same period last year, and consistently down across verticals.

As the rate of capital deployment has slowed, many previously high-velocity investors are sitting it out and not doing as many climate deals. In H1’23 the most active investors included Breakthrough Energy Ventures, Lowercarbon Capital, Climate Capital, Temasek Holdings, Collaborative Fund, MCJ Collective, Energy Impact Partners, SOSV, Fifth Wall, and S2G Ventures.

  • The usual climate-generalist suspects like Lowercarbon and BEV are still actively deploying dollars, as are recently announced funds with sizable new pools of capital to put to work, like the $1.5B Aramco Ventures Sustainabilty Fund and $7.3B TPG Rise Climate.
  • Major strategic investors, like corporate entrants Microsoft, Aramco Ventures, SK, and Exor, are becoming frequent participants in Late-stage and Growth rounds.

Corporate participation in later-stage rounds sends a positive signal—a strong strategic partner committing to collaborate on a pilot project or act as a future supplier or offtaker can help lower the perceived risk profile for other investors, and catalyze the fundraising round. Anecdotally, strategics are increasingly being pulled into deals to “lead” for relatively small check sizes and attract additional investor interest. For example: Amogy’s $150M Series B funding led by SK Innovation, Boston Metal’s $120M Series C round led by ArcelorMittal, and EnergyX’s $40M Series B led by GM.

The Exceptions

  • Growth funding in these mature verticals may have dropped off, but Transportation and Energy still dominate when it comes to megadeals.
  • Of note, many of these giant deals went to companies that took a non-traditional startup development path. ABB E-mobility and Zeekr are spin-offs and Northvolt was incubated by Vargas Holding.


Asset class: This funding report captures only Venture Capital and Growth Equity deals that have been publicly announced through regulatory filings or press releases as of June 28, 2023. We also verified deals directly with the most active investors. Where other market observers may promote larger climate market sizes, we stay true to our Climate Tech VC name and carefully exclude:

  • Country/state-level funding (e.g. State-owned enterprise funding)
  • Non-dilutive funding (e.g. debt, loans, asset financing, grants)
  • Project finance
  • Private equity
  • Post-IPO funding

We’ve long held that climate tech is a theme not an industry. Our definition of climate tech comes with two filters: 1) climate impact and 2) climate vertical. Companies must tick the box in at least one category for both filters in order to make the cut.

Climate Verticals: In addition to having climate impact, companies must fall into at least one of the seven broad climate verticals below. These verticals encompass 60+ sectors and 250+ technologies helping us mitigate, adapt, monitor, remove, and regenerate in our warmer and weirder world.

⚡ Energy - The electrons and fuel that power us

Sectors: new generation technologies (e.g., nuclear, solar, geothermal), energy storage, hydrogen and other low-carbon fuels, enabling renewables software, marketplace, and grid management platforms, DER and demand response tools, utility transmission and distribution services

🚗 Transportation - The movement of people and goods

Sectors: battery technologies, EV autos, EV charging and fleet management, electric micromobility and ridesharing, zero-emission planes, boats, and trains, urban public transport

🌾 Food & Land Use - The nutrients and resources that give us life

Sectors: alternative proteins, regenerative farming, vertical farming, sustainable fertilizer and animal feed, nature restoration and ecosystem services, remote sensing for crop yield optimization, autonomous farming equipment, water tech, and food waste reduction

🏭 Industry - The goods and raw materials we use every day

Sectors: low-carbon cement, chemical and plastics, steel, manufacturing, metals and mining, circular economy commerce, sustainable textiles and packaging, waste and recycling

🛰️ Climate Management - The data, intelligence, and risk associated with a changing climate

Sectors: emissions and sustainability reporting, earth observation through remote sensing, climate risk and intelligence platforms

🏠 Built Environment - The places we live and work

Sectors: sustainable building materials, low-carbon heating and cooling, prefab construction, energy efficiency, building electrification and energy optimization

💨 Carbon - The avoidance and removal of emitted carbon

Sectors: carbon offset marketplace and procurement platforms, carbon utilization, carbon removal and storage technologies, point-source CCS, verifiers and ratings enablers

***NOTE: You may notice that some of our numbers are larger in this update than previous editions. We constantly update the dataset to have the most accurate data possible, including adding post-dated deals.

Have a different take on what’s driving these climate tech investment trends? Or questions about our analysis? Drop us a note at [email protected] if you’re looking to dig deeper into the H1 2023 funding numbers.

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